Because of Taiwan's ambiguous political status, the ROC has participated in a number of international organizations under the name "Chinese Taipei". Due to the One-China policy imposed by the PRC government, the PRC considers the ROC ceased to exist and Taiwan is an inseparable part of China and refuses diplomatic relations with any country that recognizes the ROC. However, the ROC is still controlling Taiwan, Penghu, Quemoy and Lienchiang.

Chen Yi's administration was marred by corruption, as well as a lack of discipline in the military police assigned to occupation duties, resulting in a severe undermining of the chain of command. With the rampant corruption in his administration, Chen Yi began to monopolize power. In addition to this, the island's post-war economy was failing and headed into a recession, causing people on the island to endure economic hardship. The government's program of "De-Japanization" also created cultural estrangement, along with tensions between the growing population of migrants from the mainland and the pre-war residents of the island. The building tensions erupted in 1947, when the arrest of a cigarette vendor by government agents led to the death of a bystander. The clashes between police and residents that followed quickly spread across the island, and grew into a general rebellion against Chen Yi and the Chief Executive's Office in what came to be known as the February 28 Incident. Several weeks later, government troops were sent to Taiwan from the mainland to handle the crisis and to suppress any opposition or resistance to the government. Many prominent individuals in Taiwanese society, as well as other residents of the island, many of whom had nothing to do with the incident, were either killed, imprisoned without trial, or simply disappeared. The February 28 Incident was a prelude to the white terror of the 1950s, resulting in ethnic tensions between pre- and post-war residents, as well as the genesis of the Taiwanese independence movement.

Non-Kuomintang Taiwanese politician Wu San-lien (2L) celebrated his landslide victory (65.5%) in the first-time election for mayor of Taipei in January 1951 with his supporters.

After the February 28 Incident, the Kuomintang-led ROC government reorganized the local government, abolishing the Chief Executive's Office, while establishing a new provincial government. Wey Daw-ming, whose parents were scholars, became the first Governor of Taiwan Province and, during his administration, reduced the scope of the public enterprises, which had grown significantly under Chen Yi.

With the fall of the mainland, the United States largely wrote off the Kuomintang and Chiang Kai-Shek as incompetent, corrupt leaders who deservedly lost and was prepared to grant diplomatic recognition to the PRC. Some influential American voices expressed the cautious optimism that the newly established communist regime would be more honest and concerned about the Chinese people's welfare, especially helped by the fact that the Kuomintang deeply distrusted the US and had little in the way of common, shared values. All of this changed rapidly when the PRC intervened in the Korean War, which ruined any chance of normalizing relations with Washington for years. With mainland China now a sworn enemy of the US, the latter extended a cautious olive branch to Taipei under the adage of "the enemy of my enemy is my friend". The victorious Battle of Guningtou by the ROC forces against the communist forces helped to boost morale in the ROC Army and diminished any chance by the communist forces to take Taiwan. Subsequently, the United States Seventh Fleet started to patrol the Taiwan Straits. By the 1950s, Sino-American Mutual Defense Treaty was signed and US provided Military Assistance and Support to the ROC forces. The US Army maintained a garrison force in Taiwan until its withdrawal in 1979. The Sino-American Mutual Defense Treaty was replaced by Taiwan Relations Act after 1979.

The early years of ROC rule on Taiwan were grim, but by 1955, with the need for a functioning economy that produced something and so-to-speak "pay the monthly bills", the regime began encouraging the growth of light industries such as textiles and transistor radios.

Up and until 1958, small-scale military campaigns between the ROC forces and PLA were carried out across the strait, which lasted until the Second Strait Crisis. From that point on, both sides of the strait have ceased all major hostilities against each other. The government under the Kuomintang, through its enforcement of martial law, kept a powerful hold on the state and its people throughout the Cold War. Because the Republic of China was under authoritarian rule, any perceived opposition to the government was considered illegal and dealt with harshly. A number of unsuccessful plots were made by the CIA to remove Chiang from power and replace him with a more pliant and less authoritarian leader. Chiang for his part never fully trusted US intentions and was wary of excessively pro-American politicians.

Despite his advancing age and questionable mental state[citation needed], Chiang continued to hold onto power into the 1970s, maintaining to his dying day that he would live to rule over the mainland once again.

However, with the demise of the KMT single-party system and democratization movement during the 1980s, the martial law was eventually lifted in 1987 and provisions were eventually rescinded in 1991. Constitutional Democracy was eventually restored in ROC after 1987.

Until the early 1970s, the Republic of China was recognized as the sole legitimate government of China by the United Nations and most Western nations, refusing to recognize the People's Republic of China (PRC) on account of the Cold War. The KMT ruled Taiwan under martial law until the late 1980s, with the stated goal of being vigilant against Communist infiltration and preparing to retake mainland China. Therefore, political dissent was not tolerated.

The late 1970s and early 1980s were a turbulent time for the Taiwan-born as many of the people who had originally been oppressed and left behind by economic changes became members of the Taiwan's new middle class. Free enterprise had allowed native Taiwanese to gain a powerful bargaining chip in their demands for respect for their basic human rights. The Kaohsiung Incident would be a major turning point for democracy in Taiwan.

Taiwan also faced setbacks in the international sphere. In 1971, the ROC government walked out of the United Nations shortly before it recognized the PRC government in Beijing as the legitimate holder of China's seat in the United Nations. The ROC had been offered dual representation, but Chiang Kai-shek demanded to retain a seat on the UN Security Council, which was not acceptable to the PRC. Chiang expressed his decision in his famous "the sky is not big enough for two suns" speech. In October 1971, Resolution 2758 was passed by the UN General Assembly and "the representatives of Chiang Kai-shek" (and thus the ROC) were expelled from the UN and replaced as "China" by the PRC. In 1979, the United States switched recognition from Taipei to Beijing.

Chiang Kai-shek died in April 1975 at the age of 87, and was succeeded to the presidency by Yen Chia-kan while his son Chiang Ching-kuo succeeded to the leadership of the Kuomintang (opting to take the title "Chairman" rather than the elder Chiang's title of "Director-General"). Formerly the head of the feared secret police, Chiang Ching-kuo recognized gaining foreign support to securing the ROC's future security required reform. His administration saw a gradual loosening of political controls, a transition towards democracy, and moves toward Taiwanization of the regime. Opponents of the Nationalists were no longer forbidden to hold meetings or publish papers. Though opposition political parties were still illegal, when the Democratic Progressive Party was established as the first opposition party in 1986, President Chiang decided against dissolving the group or persecuting its leaders. Its candidates officially ran in elections as independents in the Tangwai movement. In the following year, Chiang ended martial law and allowed family visits to mainland China.

Chiang selected Lee Teng-hui, a Taiwan born technocrat to be his vice president, first in the line of succession to the presidency. The move followed other reforms giving more power to native born citizens and calmed anti-KMT sentiments during a period in which many other Asian autocracies were being shaken by.

After Chiang Ching-kuo died in 1988, his successor, President Lee Teng-hui, continued to democratize the government. Lee transferred more government authority to Taiwanese born citizens, and Taiwan underwent a process of localization. In this localization process, local culture and history was promoted over a pan-China viewpoint. Lee's reforms included printing banknotes from the Central Bank instead of the usual Provincial Bank of Taiwan. He also largely suspended the operation of the Taiwan Provincial Government. In 1991 the Legislative Yuan and National Assembly elected in 1947 were forced to resign. These groups were originally created to represent mainland China constituencies. Also lifted were the restrictions on the use of Taiwanese languages in the broadcast media and in schools.

Attempting to maintain good relations with the PRC, Taiwan avoided any criticism of the Tiananmen Square Massacre and the media was largely barred from reporting on it. A group of students who attempted to sail a chartered ship into the Formosa Strait and beam pro-democracy broadcasts into China via amateur radio were foiled by the government by putting various obstacles in their way that caused them to abandon the attempt.

However, Lee failed to crack down on the massive corruption that pervaded the government and many KMT loyalists felt that Lee betrayed the ROC by taking reforms too far, while those in the opposition felt he did not take reforms far enough.

Lee ran as the incumbent in Taiwan's first direct presidential election in 1996 against DPP candidate and former dissident, Peng Min-ming. This election prompted the PRC to conduct a series of missile tests in the Taiwan Strait to intimidate the Taiwanese electorate so that electorates would vote for other pro-unification candidates, Chen Li-an and Lin Yang-kang. The aggressive tactic prompted U.S. President Clinton to invoke the Taiwan Relations Act and dispatch two aircraft carrier battle groups into the region off Taiwan's southern coast to monitor the situation, and PRC's missile tests were forced to end earlier than planned. This incident is known as the 1996 Taiwan Straits Crisis.

One of Lee's final acts as president was to declare on German radio that the ROC and the PRC have a special state to state relationship. Lee's statement was met with the PLA conducting military drills in Fujian and a frightening island-wide blackout in Taiwan, causing many to fear an attack.

The 2000 presidential election marked the end of the Kuomintang's status as the ruling party. DPP candidate Chen Shui-bian won a three way race that saw the Pan-Blue vote split by independent James Soong (formerly of the Kuomintang) and Kuomintang candidate Lien Chan. Chen garnered 39% of the vote. After the election, Soong formed the People First Party (PFP).

The KMT also retained control of the legislature in the Legislative Yuan elections in January 2008. In the presidential election in May 2008, KMT candidate Ma Ying-jeou ran on a platform supporting friendlier relations with mainland China and economic reforms, and defeated DPP candidate Frank Hsieh with 58.48% of the vote.

Ma was re-elected, and the KMT retained its majority in the Legislative Yuan, in combined elections in January 2012. In the 2016 elections, the DPP regained power with Tsai Ing-wen becomes president.

On 24 May 2017, the Constitutional Court ruled that same-sex couples have a right to marry, and gave the Legislature Yuan two years to adequately amend Taiwanese marriage laws. According to the court ruling, if amendments are not passed within two years, same-sex marriages will automatically become legal.[3] In effect, Taiwan (ROC) would become the first country in Asia and the first non-UN sovereign state to allow same-sex marriage.

At the end of 1943, the Cairo Declaration was issued, including among its clauses that all territories of China, including Formosa (Taiwan), that Japan had occupied would be returned to Republic of China. This declaration was reiterated in the Potsdam Declaration, issued in 1945. Later that year, World War II ended, and Japan accepted the Potsdam Declaration, surrendering unconditionally. The Supreme Commander of the Allied Forces commanded that the Japanese forces in Taiwan surrender to the government of the Republic of China, which acted as the representative of the Allied Forces.[4] On 25 October 1945 in Taipei Zhongshan Hall, the Japanese government in Taiwan surrendered to the representative of the Republic of China, Chen Yi, the Republic of China formally receiving Taiwan. In 1951, Japan formally signed the Treaty of San Francisco, but, due to the unclear situation of the Chinese civil war, the peace treaty did not clearly indicate to whom Taiwan's sovereignty belonged. In the second article of the 1952 Treaty of Taipei, following the Treaty of San Francisco, Japan reiterated its abandonment of sovereignty of Taiwan, the Pescadores, the Spratlys and the Paracels.

In June 1949 the ROC declared a "closure" of all mainland China ports and its navy attempted to intercept all foreign ships. The closure covered from a point north of the mouth of Min river in Fujian province to the mouth of the Liao river in Manchuria.[7] Since mainland China's railroad network was underdeveloped, north-south trade depended heavily on sea lanes. ROC naval activity also caused severe hardship for mainland China fishermen.

After losing mainland China, a group of approximately 12,000 KMT soldiers escaped to Burma and continued launching guerrilla attacks into south China. Their leader, General Li Mi, was paid a salary by the ROC government and given the nominal title of Governor of Yunnan. Initially, the United States supported these remnants and the Central Intelligence Agency provided them with aid. After the Burmese government appealed to the United Nations in 1953, the U.S. began pressuring the ROC to withdraw its loyalists. By the end of 1954, nearly 6,000 soldiers had left Burma and Li Mi declared his army disbanded. However, thousands remained, and the ROC continued to supply and command them, even secretly supplying reinforcements at times.

During the Korean War, some captured Communist Chinese soldiers, many of whom were originally KMT soldiers, were repatriated to Taiwan rather than mainland China. A KMT guerrilla force continued to operate cross-border raids into south-western China in the early 1950s. The ROC government launched a number of air bombing raids into key coastal cities of mainland China such as Shanghai.

Though viewed as a military liability by the United States, the ROC viewed its remaining islands in Fujian as vital for any future campaign to defeat the PRC and retake mainland China. On 3 September 1954, the First Taiwan Strait crisis began when the PLA started shelling Quemoy and threatened to take the Dachen Islands.[7] On 20 January 1955, the PLA took nearby Yijiangshan Island, with the entire ROC garrison of 720 troops killed or wounded defending the island. On January 24 of the same year, the United States Congress passed the Formosa Resolution authorizing the President to defend the ROC's offshore islands.[7] The First Taiwan Straits crisis ended in March 1955 when the PLA ceased its bombardment. The crisis was brought to a close during the Bandung conference.[7]

The Second Taiwan Strait Crisis began on 23 August 1958 with air and naval engagements between the PRC and the ROC military forces, leading to intense artillery bombardment of Quemoy (by the PRC) and Amoy (by the ROC), and ended on November of the same year.[7] PLA patrol boats blockaded the islands from ROC supply ships. Though the United States rejected Chiang Kai-shek's proposal to bomb mainland China artillery batteries, it quickly moved to supply fighter jets and anti-aircraft missiles to the ROC. It also provided amphibious assault ships to land supply, as a sunken ROC naval vessel was blocking the harbor. On September 7, the United States escorted a convoy of ROC supply ships and the PRC refrained from firing. On October 25, the PRC announced an "even-day ceasefire" — the PLA would only shell Quemoy on odd-numbered days.

Despite the end of the hostilities, the two sides have never signed any agreement or treaty to officially end the war.

After the 1950s, the "war" became more symbolic than real, represented by on again, off again artillery bombardment towards and from Kinmen. In later years, live shells were replaced with propaganda sheets. The bombardment finally ceased in 1979 after the establishment of diplomatic relations between the People's Republic of China and the United States.

During this period, movement of people and goods virtually ceased between PRC- and ROC-controlled territories. There were occasional defectors. One high-profile defector was Justin Yifu Lin, who swam across the Kinmen strait to mainland China and is now Chief Economist and Senior Vice President of the World Bank.

Most observers expected Chiang's government to eventually fall in response to a Communist invasion of Taiwan, and the United States initially showed no interest in supporting Chiang's government in its final stand. Things changed radically with the onset of the Korean War in June 1950. At this point, allowing a total Communist victory over Chiang became politically impossible in the United States, and President Harry S. Truman ordered the United States Seventh Fleet into the Taiwan straits to prevent the ROC and PRC from attacking each other.[8]

In 1987, the March 7 Incident (Lieyu massacre) in Lesser Kinmen cast a profound ripple on the cross-strait relation between China and Taiwan—4 months later on July 15, the Martial law in Taiwan was lifted; and 5 months later on December 15, the ROC government began to allow visits to mainland China. This benefited many, especially old KMT soldiers, who had been separated from their family in mainland China for decades. This also proved a catalyst for the thawing of relations between the two sides. Problems engendered by increased contact necessitated a mechanism for regular negotiations.

Led by highly respected elder statesmen Koo Chen-fu and Wang Daohan, the two organizations began a series of talks that culminated in the 1992 meetings, which, together with subsequent correspondence, established the 1992 Consensus, under which both sides agreed to deliberate ambiguity on questions of sovereignty, in order to engage on operational questions affecting both sides.

Also during this time, however, the rhetoric of ROC President Lee Tung-hui began to turn further towards Taiwan independence. Prior to the 1990s, the ROC had been a one-party authoritarian state committed to eventual reunification with mainland China. However, with democratic reforms the attitudes of the general public began to influence policy in Taiwan. As a result, the ROC government shifted away from its commitment to the one China policy and towards a separate political identity for Taiwan. Jiang Zemin, General Secretary of the Communist Party of China, was also unwilling to compromise. Jiang notoriously attempted to influence the 1996 ROC election in Taiwan by conducting a missile exercise designed to intimidate Taiwanese voters and interfere with international shipping, leading to the Third Taiwan Strait Crisis. By 1998, semi-official talks had broken down.

Up until the 1970s, the international community generally considered the Kuomintang on Taiwan to be the legal representative of China, but acknowledgment of the nation of the People's Republic of China slowly increased. In 1954, the Republic of China and the United States signed the Mutual Defense Treaty between the United States of America and the Republic of China. In 1971, the United Nations acknowledged the People's Republic of China to be the sole legal representative of China (United Nations General Assembly Resolution 2758). The KMT government strengthened their "Han and the thief cannot both stand" (漢賊不兩立) stance and announced withdrawal from the United Nations. After this, the international position of the Republic of China slid to a large extent. In 1979, when the United States broke relations, it created an even more severe attack on the diplomatic plight of the ROC. In recent years, the ROC government has tried several times to apply anew to enter international organizations such as the United Nations and the World Health Organization, but, under the opposing side's powerful obstruction, there has been no success.

The question of the political status of Taiwan or whether the two sides are moving toward unification or seeking de jure independence is still unresolved. The assertion of the People's Republic of China both domestically and internationally is "Whether from the perspective of history, government or international law, Taiwan is an inseparable part of China. The political status of Taiwan is a Chinese domestic affair, and, under the premise of no hope for unification as well as certain other (conditions), (the Chinese government) does not abandon (the possibility of) the use of force to resolve it."[9] Those persons promoting Taiwan independence feel that, because of the Treaty of San Francisco signed by Japan and the United States and the unclear indication of the handover of Taiwan's sovereignty (the status of Taiwan was not decided on), Taiwan's future direction should be decided upon by the people of Taiwan and that the People's Republic of China not be permitted to threaten the use of force.[10]

On 14 March 2005, the National People's Congress of the People's Republic of China passed the Anti-Secession Law, making clear for the first time in legal form the One-China principle. Some people in Taiwan felt dissatisfied about this, and, on March 26, hundreds of thousands of people went to the streets of Taipei, participating in the 326 Protect Taiwan Demonstration, indicating their strong dissatisfaction with and protest of the law.[11][12] Beginning on 26 April 2005, KMT, and various Pan-Blue political parties visited mainland China, creating an upsurge in the political dialogue between the two sides (see 2005 Pan-Blue visits to mainland China), but cross-straits relations are still full of uncertainty.

During the post-war period, Taiwan was lacking in goods and materials, the economy was depressed, and inflation was severe. After the national government moved to Taiwan, agriculture was first to grow, and, in 1953, Taiwan's economy returned to its pre-war level. After this, the government pursued a policy of "Nurture industry with agriculture"(以農養工) on the foundation established during Japanese rule. With the capital, manpower, and skilled labor that was in Taiwan, American aid,[19] etc., Taiwan's economy progressively moved toward rapid growth. In the 1950s, the government carried out an import substitution policy, taking what was obtained by agriculture to give support to the industrial sector, trading agricultural product exports for foreign currency to import industrial machinery, thus developing the industrial sector. The government raised tariffs, controlled foreign exchange and restricted imports in order to protect domestic industry. By the 1960s, Taiwan's import exchange industry was faced with the problem of saturating the domestic market. At the same time, the factories of some industrialized nations, because of rising wages and other reasons, slowly moved to certain areas that had both basic industry and low labor costs. Consequently, the economic policy of Taiwan changed to pursue export expansion. In 1960, the government enacted the "Regulations for Encouraging Investment," actively competing for foreign business investment in Taiwan. In 1966, the government established the Kaohsiung Export Processing Zone, Asia's first export processing zone, to expand the manufacturing production. In the role of a manufacturing relay station, Taiwan became a link in the international system of division of labor. In 1963, the proportion of Taiwan's economy occupied by industry exceeded that of agriculture. From 1968, Taiwan maintained two-digit long-term annual average economic growth up until the 1973 oil crisis.[20] In 1971, Taiwan had a foreign trade surplus and continued from then on in an export state and a major producer of electronics goods.